What is a market suspension and what does it mean?
Market suspensions are rare measures taken by a central government in times of economic uncertainty and increased volatility. Here, we explain what a market suspension is and what it means for your active positions.
What is a market suspension?
A market suspension is when a country suspends trading on its national markets, which can include its stock, bond and forex markets. Suspensions usually refer to a trading halt that lasts longer than the guidelines set out for circuit breakers or limit ups and limit downs, and they can last for more than a day.
Market suspensions are used in times of economic crisis to prevent mass panic selling, and to attempt to stabilise national markets by halting all transactions for an extended period of time.
What does it mean for traders?
A market suspension means that traders will be unable to open, edit or close their positions on an affected market. This can apply to shares positions for equities listed on a country’s regional stock exchanges. For example, if the US suspended its markets, you’d be unable to close your positions on the New York Stock Exchange or NASDAQ stock index.
Market suspensions can also mean that trading will halt in that region for other financial markets, including bonds and currencies – but accessing these assets in international markets might still be possible.
The Philippine government was the first to suspend its markets during the ongoing coronavirus pandemic, which meant that it halted all trading on nationally-listed stocks. Traders in the Philippines were also unable to speculate on currency pairs or Philippine bonds on domestic markets during the suspension.
What can I trade when the markets are suspended?
While a market suspension means that trading on national exchanges and trading venues is halted, you can still trade assets that are listed in different geographical locations – providing that they are still open to trade.
For example, if the UK government decided to implement a market suspension but the US government did not, you would still be able to trade Wall Street, US bonds and forex pairs in the US. However, you wouldn’t be able to trade markets such as the FTSE 100 or UK government bonds.
Since forex is an over-the-counter market with 24-hour trading, you can also speculate on rising or falling currency prices during a regional market suspension.
This is because forex is not traded on a centralised exchange like shares, and trading is instead made possible through a global web of bankers, brokers and market makers.
To trade during a market suspension, follow the steps below:
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